The annual budget exercises are to start soon. The Finance Ministry will be flooded with requests for changes in direct tax laws, to bring tax liability to the minimum. No suggestions are made, which may augment revenue collections, increase tax base, improve compliance and reduce complexity of laws, consequent to tax preferences therein.

Media reports show that taxpayers in other countries have been requesting the respective Governments to take from them more by way of taxes. Such magnanimous gestures have never been forthcoming from India's rich and super rich, who, besides legal ways to avoid tax, also indulge in evasion in a big way.

Sometime ago, a report appeared in Indian newspapers regarding the gesture of German taxpayers in the context of tax payments as under:

‘We have enough to spare, tax us more'

To fight crisis, rich petition Merkel to raise taxes

Berlin: Some rich Germans have launched a petition to call for the resumption of a wealth tax to help the country bounce back from an economic crisis, because, as one said, he had “a lot of money I do not need”.

The text, posted on the Internet at >www.appell-vermoegensabgabe.de , has been signed by more than 40 people, who wanted to convince the government of newly re-elected Chancellor Angela Merkel to raise their taxes. For retired doctor Dieter Kelmukuhl, 66, it is time the wealthy came to the aid of their country. He reckoned that if the 2.2 million Germans, who have personal fortunes of more than $750,000, paid a tax of 5 per cent this year and the next, it would provide the state with €100 billion. His plan would see a 5-per cent tax for two years of fund-specific projects, followed by a reduction to 1 per cent, the level of the tax when it was abandoned in 1997.

BUFFET'S PHILOSOPHY

Recently, reports have come in the print media regarding the suggestions of billionaire Warren Buffett, to the Congress, for levy of more tax on the nation's wealthiest individuals, to reduce the US budget deficit. This would have no effect on investment or job growth. He said: “My friends and I have been coddled long enough by a billionaire-friendly Congress.” The Chairman and Chief Executive Officer of Berkshire Hathaway wrote in an article published in the New York Times . “It's time for our government to get serious about shared sacrifice.”

Buffett's advocacy of higher taxes for the “mega-rich” reinforces President Barack Obama's call for an end to tax breaks for corporate-jet owners. In the article, the 80-year-old investor said his federal tax bill last year, or the income tax he paid and payroll taxes paid by him on his behalf, was $6,938,744. “That sounds like a lot of money,” Buffett wrote. “But what I paid was only 17.4 per cent of my taxable income — and that is actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens averaged 36 per cent.”

Mr Buffett's suggestion is that the tax rate should be raised for those making more than $1 million, including dividends and capital gains — there were 236,883 such households in 2009. For the 8,274 taxpayers who made $10 million or more, an additional increase in the rate could be made. Mr Buffett cited Internal Revenue Service data showing that the tax burden on the nation's wealthy had fallen in the past two decades. He added that the notion that high taxes discourage hiring and investment is false.

Mr Buffett significantly wrote: “While the poor and middle class fight for us in Afghanistan and while most Americans struggle to make ends meet, we, mega-rich, continue to get extraordinary tax breaks.”

INDIAN BILLIONAIRES

In contrast, in India, the billionaires (whose number is quite significant, but many of whom are not even in the tax net) avoid crores of taxes legally, because the tax department is unduly considerate to them by not charging income-tax on agricultural income, dividends, wealth-tax on rural rich and values of shares, securities and other assets, branding the same as productive assets, while salary earners are not allowed even to deduct employment-related expenses from their salaries. Prima-facie, this is unjust and unfair.

And all magnanimous exemptions are allowed on the plea of growth and development in India. According to Mr Buffett, such increase in taxes is not destructive of growth and development. In 1992, the top 400 American earners had an aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 per cent on that amount. In 2008, while the aggregate income of the highest 400 had soared to $90.9 billion, the rate paid had fallen to 21.5 per cent.

“I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 per cent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain,” he said. People invest to make money, and potential taxes have never scared them off. And to those, who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what happened since then: lower tax rates and far lower job creation”.

One feels sorry to find that when big industrialists meet the Finance Minister on Budget eve, even they have only lists to claim reduction in taxes. It is regrettable that in India, there are no takers of the view of Mr Justice Holmes of the US Supreme Court, who has said that he liked paying taxes, because, with these, one buys civilisation. Such culture needs to be inculcated from the Government's side.

(The author is a former chairman of CBDT.)

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